Ponzi Scheme or Not, Social Security Can't Keep Up the Pace

Social SecuritySocial Security's trust fund is in the process of collapsing because it will have insufficient funds available to pay promised benefits. Sound like a Ponzi scheme? That's what many prominent political and investing figures have called it.

Whether the system meets a broad definition of Ponzi scheme, at least this "scheme" is one in which you can come out ahead.

You've got a few things going for you:

  • Charles Ponzi's original setup had a frightfully speedy collapse that occurred after around 200 days. Social Security currently estimates its trust fund won't run dry until around 2036.
  • When Social Security's trust fund does empty, recipients will still get about three-quarters of their expected benefits. For contrast, just ask the victims of Bernie Madoff's Ponzi scheme how tough it is to get money out of a real Ponzi scheme after it collapses.

The Good News? You've Been Warned

You have time until Social Security's trust fund vanishes -- meaning you can still prepare for that event. Even better, the best way to prepare is to essentially do what you should have been doing anyway: Invest for your retirement.

Even if Social Security's trust fund weren't in trouble, the program generally replaces only about 40% of a person's average lifetime income, indexed for inflation. When Social Security's trust fund is gone and the program pays out reduced benefits, the typical recipient will get closer to 30% of average earnings.

Unless you're preparing to live on what amounts to a minimum-wage salary, you should already be investing heavily for your retirement.

Retire Comfortably Anyway

To prepare for Social Security's diminished capacity, you must ask yourself how much of your average earnings you'll need to support your lifestyle in retirement.

The general rule of thumb is somewhere in the 70% to 80% range, but circumstances vary from person to person. If you're figuring on 75% -- the midpoint of that range -- then what Social Security's troubles really mean is that you'll need to replace 45% of your salary from other sources. That's up from the 35% you'd have to cover with a healthy Social Security.

Viewed in that light, planning for the collapse of Social Security's trust fund becomes a fairly straightforward numbers game.

How to Make Up for Social Security's Coming Shortfall

Increasing the amount of income that needs to be replaced by your portfolio from 35% of salary to 45% requires just under 30% more money, all else being equal. That's not an insurmountable hurdle to clear, and it helps clarify the four levers you'll be working with to cover that gap. Those levers are:

1. Save more: If you can come up with a little bit more every paycheck to put toward your retirement, you can cover that gap. If money's a bit tight right now, you can choose to save part of your raises as soon as you get them. That way, you'll never miss the money you had never seen, while boosting your nest egg to cover your golden years.

2. Work longer: At around 8% returns, it'd take around three extra years of working to cover that gap, perhaps a bit less if you continue to sock away new contributions during that time. Of course, it could take you a bit longer or shorter, depending on both your investment choices and the market's mood. But if you have the option of staying on the job, it's a good way to make up for Social Security's shortfall.

3. Seek higher returns: If you invest a bit more aggressively, your portfolio may be able to grow a few percentage points faster. Those few points, compounded over several years, can add up to some serious coin -- and enough to cover the gap. There are no guarantees in investing, however, and more aggressive investing does bring with it the potential for loss, as well as gain.

4. Live with less: Of course, if you do nothing differently in your retirement planning, you're currently scheduled to wind up with around a quarter less Social Security money once the trust fund is gone. If your general costs of living are low enough that you won't be materially affected by missing that money, then you can simply do without it.

Because there are still a couple of decades until the trust fund is gone, all four of those levers are at your disposal, as is the ability to use a combination of those levers to your advantage. The longer you wait to get started, though, the less valuable the investing-related levers will be. Wait long enough, and your choices will be limited to living with less or working longer before retiring.

Whether Social Security meets the technical definition of a Ponzi scheme, the net effect to you is the same. The trust fund is running out of money, and you need to plan for a retirement with a smaller Social Security check headed your way. Otherwise, 2036 will be here sooner than you think, and the decision will be made for you, instead of by you.

For more on dealing with today's retirement realities, see:

Increase your money and finance knowledge from home

Introduction to Preferred Shares

Learn the difference between preferred and common shares.

View Course »

What is Inflation?

Why do prices go up?

View Course »

Add a Comment

*0 / 3000 Character Maximum


Filter by:
Beth Ayers

Janet, the details leading to my birth are of no concern in relation to Social Security, did you want to start a talk about religion? Believe me, I have a lot of interesting views on that as well.

What do you mean by right winged? Please explain yourself. Your terminology is confusing me, because the names you are calling me contradict each other.

This is what I am AMERICAN. I believe in our founding Fathers dream. I believe in the reason why our ancestor's fought for this land with their lives. Why they found the courage to hop on board the 1600's wooden ships with cloths sails and endure that whole journey to come to this land.I am grateful for what they did. I believe in the reason why social security was established. I believe in participating in it.

Here is where I have a problem. I have a problem with corruption. I have a problem with incompetence. I have a problem with no accountability. I have a problem with being treated like a peasant and forced into poverty while my loved ones suffer and I am forced to provide as well as give them the care they need, while HIGH paid ALJ's sit back in their big comfy chair twiddling their thumbs prolonging the suffering of the disabled and their families for years. I have a problem with as a woman who has worked since I was 14 years old, My husband has worked since he was 12 years old (delivering news papers as a young boy), my daughter has worked since she graduated high school, our employers also contribute, that now I find myself in a position that I can clearly see what causes, insanity,prostitution,crimes, violence and homelessness. This is wrong, its costing American citizens on so many levels. We treat our prisoners better then our disabled! Social Security the concept is good the administration is corrupt.

I also believe that when I have the knowledge that something is unjust and corrupt causing the suffering of countless innocent and helpless, I must stand and speak up. How do you think Hitler accomplished what he did? He did not accomplished what he accomplished by himself! In my opinion he accomplished what he accomplished mostly because good people allowed fear to silence them, as they looked toward the ground in shame. In fact this problem goes back to ancient times, I believe it is mentioned in the Bible.

If I am to leave Social Security to the civilized people are you referring to the rich healthy people? Clearly, Janet, just by your name calling and false accusation to try and cause confusion and question my creditably are not tactics of the civilized. So, thank you for pointing that out to me that collaborating with you is a waste of my time. Be well, Janet!

February 14 2012 at 11:46 AM Report abuse rate up rate down Reply

Of course you're Beth Ayers you psycho bastard right wing weinie. Crawl back in your libertarian hole and leave social security to the civilize people.

Buddy you are diseased.

February 11 2012 at 2:55 AM Report abuse rate up rate down Reply
Beth Ayers

Janet, I am Beth Ayers I am women who's husband has been ill and unable to work for the last 5 years. He has had three major surgeries over the last 18 months and needs at least one more.

Our daughter was staying after school one day to rehearse for a mother's day musical. She was in the choir, it was her Jr. year. She and her BF started to get hungry around 5pm and they were going to be there until at least 9 because the concert was the next day and they were also setting up. The school offers no concessions after lunch but there is a 7-11 across the street. Believe me you never want to get that kind of a call.

Ring, Ring, Ring " HURRY M---- GOT HIT BY A CAR!' My precious little girl was lying in the road when I arrived broken with very serious injuries. We are still recovering.

The speed limit is 45 mph, my daughter was the # 300 student to get hit there in 10 years, but to go on to learn the problem has been going on for 30 years ever since they put the 7-11 across the street from the high school. No body did anything about it they just continued to allow this to happen, everyone knew about the issue, school board and officials, the city, the road commission and county. But they just ignored the issue, why because they are the government and they have immunity.

All this time I have been taking care of both of them. It has cost me everything. I could start a conversation about insurance companies but let's stay focused shall we. At this point we receive food stamps and I am not complaining about that program, but then again I don't live in Yucca Valley CA. like Janice does. I am blessed to have a state that dose not do what California does apparently. So I have no idea what that whole issue is with Janice but the story did catch my eye when I was reading stories about SS complaints at CONSUMERAFFAIRS.com/insurance/ssa/html.

So I don't know Janice. Are you telling us you know Janice? You know the state programs in California? You know I read the story again and it really does not say anything on what Janice's gender is. I guess that just wasn't what I was interested about when I read the story. And I'm really not interested in spreading gossip about this disabled person when SS is a serious issue.

Let's try a new way...getting honest people in charge.

January 31 2012 at 1:04 AM Report abuse rate up rate down Reply

Aside from the piece of trash guy pretending to be a disabled old woman whose worked for 31 years but is not an old woman and whose benefit has degraded down to $62/month even though as a matter of law that is impossible, I'm taking on all of you rightwing subhuman suckholes.

Let's try a new lie...how about SS tax cuts are self-financing?

January 30 2012 at 8:24 PM Report abuse rate up rate down Reply
Beth Ayers

I'm not going to stop informing the public of the truth Janet. I never said I was an old woman. I'm not some man pretending to be a women either. I am person who has been forced to support and care for two disabled people for five years now while SS drags there feet and plays petty games. No one helps me support or care for them with the exception of the state with food stamps. One of them was injured by the neglect of the local government, but you see the government has immunity from there actions even if they harm you. I'm advocating for the disable and you think that's subhuman? Do you work for SS?

Again I don't know who you think I am, so why don't you just come out with it? Who are you talking to? Who is your Buddy and Pal, he sounds like someone who might have something the rest of us would like to hear.

What facts are wrong, tell me? Well the word discrimination really got you fired up, if I have no clue, why don't you inform me. What Makes a discrimination lawsuit? What is it I'm being ignorant about? What is it I've lied about? Your the one who is lying at least about who I am anyway. So I believe that is where your ignorance comes into play. Especially attacking me with name calling. You should be ashamed of yourself Janet! Trying to stop me from exposing the truth about what is happening to these people, your the one that has deception in your heart, not I.

You have no clue as to my living condition. But I am glad that you brought up the fact that it is nearly impossible for the disable and people who are poverty stricken to get there voices heard. My God they have even taken the pay phones from them, they can't even call the 800# if they needed to.

As far as the library it is a resource for those that can get there, but I have found a lot of blocks to access chat rooms, so again very hard to get their voices heard. So I will be their voice for right now until we change that. And people like Janet won't stop me even if she is flinging wild assumptions around. You know what they say about people who assume things, right?

Americans are smart, most of them with the exception of paranoid Janet, know the truth when they hear it. If I'm miss informed then educate me about what it is I'm miss informed about. I am speaking from my personal experience with SS. I am no fraud. What I tell you is what I've learned from SS. I think Janet is inspiring me to open that you tube account, or write a book.

January 28 2012 at 12:48 PM Report abuse rate up rate down Reply
1 reply to Beth Ayers's comment

Get lost psycho. Do something productive with your life instead of badmouthing a program tha helps millions.

On the other hand Buddy, do the honorable thing and just end it. You're so far gone anyways you're beyond hope.

hahahaha. It's not SS, it's government ...it's bad. Like I said pal, take the stovepipe express you subhuman piece of trash.

Let the most wildly successful government program be.

January 30 2012 at 8:18 PM Report abuse rate up rate down Reply
1 reply to Janet's comment
Beth Ayers

So you can't answer any of my questions? Ah, you must work for SS

January 31 2012 at 1:19 AM Report abuse rate up rate down

Just stop it "Beth." You've been exposed as a fraud. Pretending to be a disabled old woman just to attack a fine program like SS is a slimey low but par for the course for subhumans like yourself buddy.

The giveaways: you got your facts wrong and you have no clue to what makes a discrimination lawsuit. Your ignorance is your betrayal...that and your ham-handed lies.

So I guess you're posting your crapola from a public library computer with free internet access...or do poverty stricken people like yourself generally have a computer and internet access where you can spend your free time BSing on chit chat forum?

Again, you are filth pal.

January 28 2012 at 7:37 AM Report abuse rate up rate down Reply
Beth Ayers

By the way Janet thanks for pointing out that " the Judge tossed the law out the window because he didn't like the claimant". Exactly what I'm saying there is discrimination against the disable. It's unacceptable.

January 28 2012 at 6:49 AM Report abuse rate up rate down Reply
Beth Ayers

Social Security works for some people, unfortunately if your disabled before your able to retire well that's another story. Get ready for the fight of your life at the very moment your helpless. Talk about kicking you when your down. I will say Social Security is absolutely working for the corrupt administration, they certainly aren't hurting. It's time to clean house, get some honest people in charge. Social Security was set up to work, somehow crooks got control, now we need to take it back so it can work the way it was designed to.

January 28 2012 at 12:15 AM Report abuse rate up rate down Reply

Social Security works. It has taken some 16 million elderly out of poverty. For some reason, these subhumans keep lying about its benefits, funding and solvency. Look at the wretch pretending to be an old woman in order to scam people into believing the crapola he's slinging. That's what con-men do. Stop that. Show some dignity for once in your useless life.

January 27 2012 at 10:10 PM Report abuse rate up rate down Reply
1 reply to Janet's comment
Beth Ayers

Who are you talking about? There is some man pretending to be an old woman? Who is the con-men your talking about? I am who I say I am. My life is not useless and I have plenty of dignity despite what SS has put me and my family through. I'm sick of it and I'm going to inform as many people as I can about the corruption and abuse that is going on against the disable. I can prove my experience. So I'm not sure who you are referring to but if it's me, I not whoever you think I am.

January 27 2012 at 11:57 PM Report abuse rate up rate down Reply
Beth Ayers

I'm just trying to bring to your awareness how this part of Social Security is corrupt and they are taking advantage of those who can not defend themselves. This part of the system is being worked by the Judges, their staff, Corrupt Doctors and attorney's. Think about it terms of money that is lining the pockets of these people, yet story after story about the disabled becoming homeless, not being able to eat, or get much needed medications or treatments. The burden being past on to family or friends, State agencies, all of us really. We are being ripped off whatever you want to call the scam.
I did not hear of any of the judges houses being foreclosed on. I bet the back log would change if the Judges were paid on how many cases they made decisions on. I bet the decisions would be fair if there was some kind of penalty for bad decisions that came out of the Judges pay. I bet no Doctors would risk their licence to practice if they were held liable for their professional opinion. I took in a recorder with me to one of the SS Psychological evaluations and the Doc flipped out! Refused to do the interview and kicked me out of her office. I have it all recorded. I think I will start you tubing everything, I think most Americans would be appalled, by the things that I have found out.

January 24 2012 at 5:37 PM Report abuse rate up rate down Reply
1 reply to Beth Ayers's comment

There's something profoundly sad and pathetic about some rightwing subhuman pretending to be an old woman to badmouth the most wildly successful governmental social insurance program in history. Your benefit has eroded to $62.00? That's pretty hard to do with the annual COLA increases. As for your little courtroom drama example of the shabby treatment of SS applicants for disabilty...the judge throws the law out the window b/c he didn't like the claimant....hmmm obvious reversible error b/c what? SS is just a scam?

Hit the bricks.

January 27 2012 at 10:04 PM Report abuse rate up rate down Reply
1 reply to Janet's comment
Beth Ayers

Oh I'm sorry Janet do you know Janice of Yucca Valley, Ca.? Or are you talking about me? Janice is a story I came across at consumeraffairs.com. I'm not pretending to be some old woman and I'm certainly not subhuman or right-winged. This type of court room drama happens a lot, the law is there to be followed, the judge is there to do a job not put his personal feelings above the law. It should not matter weather the Judge LIKES a person. Where in the laws does it say the Judge must like you or he will prolong your suffering? Placing heavy burdens on your family, friends or state agencies. I don't remember reading that on any documents. IT"S WRONG! Judges that make their decision based on personal feelings about someone that they don't even know anyway need to be removed from the bench PERIOD! Oh you think it's just that simple to reverse a decision? It takes years. Maybe you need to read my earlier post to catch up to what I'm saying before you reply to me. What I'm saying is there is corruption in this area of SS. And what that corruption is costing us.


January 27 2012 at 11:47 PM Report abuse rate up rate down